The Four Ways It Is Revolutionizing Innovation

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  • Topic: MIT Sloan School of Management, Massachusetts Institute of Technology, Innovation
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SPRING 2010

V O L . 5 1 N O. 3

Interview with Erik Brynjolfsson

The Four Ways IT Is Revolutionizing Innovation

Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the article appears as originally published.

REPRINT NUMBER 51330

I T - D R I V E N I N N O VAT I O N

The FourWays IT Is Revolutionizing Innovation
MIT Sloan School of Management economist and digital business expert Erik Brynjolfsson tells how the rising data flood and the emerging tools for analyzing it are changing the ways innovation gets done. INTERVIEW BY MICHAEL S. HOPKINS

THE LEADING QUESTION

How are IT advances changing innovation?
FINDINGS
Tech advances aren’t just innovations in themselves, they’re enabling a new process for innovating. The real power is combining these new innovation processes — measurement, experimentation, sharing and replication — in sequence. Leading companies using business analytics have faster cycle times, more flexibility and a higher metabolism for processing information.

THERE’S ALWAYS BEEN a performance gap between companies that embrace technology and companies that resist it — what IT innovation thinker Erik Brynjolfsson calls the productivity gap between “leaders and laggers.” What’s new, though, is that while the gap was fairly steady for decades, in 1995 it suddenly started to widen — and is widening still. Credit the rise of systems like enterprise resource planning, the expanding use of the Internet and the fact that every dollar buys incrementally more computerization. Brynjolfsson found not only that the leadervs.-lagger gap has grown in the past decade but also that it has grown the most in IT-intensive industries. Why? Because the leaders are capitalizing on technology advances to pioneer a whole new innovation paradigm, based on the ways they measure, experiment with, share and replicate information. In a conversation with MIT Sloan Management Review editor-in-chief Michael S. Hopkins, Brynjolfsson, the director of the MIT Center for Digital Business and the Schussel Family Professor at the MIT Sloan School of Management, talks about how smart companies have learned to tap the flood of data created by information technology and process it with what he calls a “higher information metabolism” and how they’re changing the ways that innovation gets done. SLOANREVIEW.MIT.EDU

Harrah’s, the world’s largest casino company, based in Las Vegas, has developed a culture of experimentation with analytics that has propelled it to the top of its industry.

SPRING 2010 MIT SLOAN MANAGEMENT REVIEW 51

I T - D R I V E N I N N O VAT I O N

Your research and work with the MIT Center for Digital Business focuses on the ways that information technology is linked to innovation. Let’s start with your big picture overview.

you want to be able to scale those results up. By doing all four of these changes together, companies are, in essence, creating a new kind of R&D. Let’s go through those one by one. The first, you’ve said, is measurement.

In the long run, our competitive advantage and all of our living standards depend on innovation, and I would argue that for our era, the most important driver of innovation is information technology. Thanks to Moore’s law, the adjusted power being delivered, for instance, by computers has grown tremendously. That directly has led to quantifiable increases of productivity. Information technology is also a catalyst for complementary changes: It’s what economists call a “general purpose technology” that sets off waves of complementary innovations in things like business processes, new ways of reaching customers, new ways of connecting to suppliers, internal organization to the company. These complementary changes are often 10 times as large as the size of the initial investments in the IT itself and have profound and long-lasting effects on our ability to create goods and services. But there’s a...
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